Pareto's Principle - The 80-20 Rule Revisited

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. While it may be misnamed, Pareto's Principle or Pareto's Law as it is sometimes called, can be a very effective tool to help you manage effectively.

After Pareto made his observation and created his formula, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle he called the "vital few and trivial many" and reduced it to writing. In an early work, a lack of precision on Juran's part made it appear that he was applying Pareto's observations about economics to a broader body of work. The name Pareto's Principle stuck, probably because it sounded better than Juran's Principle.

As a result, Dr. Juran's observation of the "vital few and trivial many", the principle that 20 percent of something always are responsible for 80 percent of the results, became known as Pareto's Principle or the 80/20 Rule.

What It Means

The 80/20 Rule means that in anything a few (20 percent) are vital and many(80 percent) are trivial. In Pareto's case it meant 20 percent of the people owned 80 percent of the wealth. In Juran's initial work he identified 20 percent of the defects causing 80 percent of the problems. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.

You know 20 percent of your stock takes up 80 percent of your warehouse space and that 80 percent of your stock comes from 20 percent of your suppliers. Also 80 percent of your sales will come from 20 percent of your sales staff. 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production. It works both ways.

How It Can Help You

The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter. Those 20 percent produce 80 percent of your results. Identify and focus on those things. When the fire drills of the day begin to sap your time, remind yourself of the 20 percent you need to focus on. If something in the schedule has to slip, if something isn't going to get done, make sure it's not part of that 20 percent.

There is a management theory floating around at the moment that proposes to interpret Pareto's Principle in such a way as to produce what is called Superstar Management. The theory's supporters claim that since 20 percent of your people produce 80 percent of your results you should focus your limited time on managing only that 20 percent, the superstars. The theory is flawed, as we are discussing here because it overlooks the fact that 80 percent of your time should be spent doing what is really important. Helping the good become better is a better use of your time than helping the great become terrific.

Here’s twenty ways you can use the 80/20 Rule to live a more balanced life:

1. Work Tasks - Write down all the broad categories of tasks you do at your job. You can make a little table that shows the amount of hours spent at each category (say, 1 hr for E-mail, 1 hr for contacting clients, etc.) and on another column write down a value estimate for what percentage you believe it contributes to your productivity. Eliminate, simplify or delegate low %’s and focus on high %’s.
   
   
2. Food - Record your eating habits for a week. Calculate up the calories of the different items of food. I’ve done this before and I’ve found it surprising how some treats contribute a high percentage of your calorie pie for no nutritional value, when other vices consumed in smaller portions take up only a sliver but still offer a tasty treat.
   
   
3. Daily Time Log - Do a time log on your activities for an entire day. Record the stop and start point for any activity. Then broadly shuffle the different activities into categories. Figure out what parts of your day aren’t contributing to either productivity, entertainment or personal happiness and cut them out.
   
   
4. Reading - Look at the last few dozen books you’ve read. Rate them according to the amount of useful info or entertainment value. Look for trends and use that info to skim or skip future books to save time.
   
   
5. Relationships - Look at your social circle and friends. Do a rough estimate of the amount of time and energy you invest in each relationship. Compare that to the amount of stress or satisfaction. You might find that certain relationships are toxic and others are valuable and should be invested in more.
   
   
6. RSS Feeds - Look through your feed list. Write down the percentage of articles you enjoyed out of the last ten in the feed. Eliminate the lowest %’s. You may want to take into account article length or posting rate, but quality is probably the best measurement of all.
   
   
7. E-Mail - Group the types of e-mails you answer into basic categories. Consider developing a template for the most common e-mail responses that contribute the least potential value for answering personally.
   
   
8. Magazine Subscriptions - Same as RSS feeds. Go through all your subscriptions and give a percentage scale of what you perceive to be the value of the last several editions. Cancel subscriptions to the bottom and leave the top.
   
   
9. Television Shows - Record your television watching habits for a week or two. After watching give a subjective rating of the television show. After your done, total up the amount spent on different shows or channels. If you have a special subscription service, cancel the channels that you don’t watch or have little value. Otherwise, consider eliminating live television entirely and recording the shows you feel are valuable to watch later. I’ve done this before and it can be a big time saver while still allowing you to enjoy some passive entertainment.
   
   
10. Web Surfing - Record your web usage for a day or two. Write down the sites you visited or tools you used to get there (StumbleUpon, Digg, etc.) Figure out sites took up the most time and which had the least value. You’d be surprised how often they are the same thing.
    
    
11. Spring Cleaning - Although it’s only a few weeks from summer, you can use this on any organization attempt. Go through your items and trash all the items that you haven’t used recently (except for important documents). Just because you have storage space, doesn’t mean it should be filled with garbage. Eliminate clutter and it becomes far easier to find and use the things you actually need.
    
    
12. Clients/Customers - This one comes from Tim Ferriss, in the Four Hour Workweek. Figure out which customers contribute the most complaints and the least revenue. Notify them that things will need to change and set down some guidelines. Then fire the ones that don’t comply. Goes against the doctrine that the customer is always right, but some people just aren’t worth the trouble they cause.
    
    
13. Hard Drive - Sort through your computer documents, comparing the last modified date for various major folders. Create a separate folder system where you can move these rarely used files. This will eliminate your computer clutter and make it far easier and faster to find the stuff you actually use.
    
    
14. Desktop - Same thing as the hard-drive, but I do it every week or two. Just go through your desktop and delete any short-cuts or move documents that haven’t been used in the last two weeks. You don’t have to completely eliminate everything, but it will make your desktop a more efficient workspace.
    
    
15. Applications - Go through all your computer applications. Figure out which ones are distracting and are either rarely used or contribute little value. Uninstall those. If this seems like too much work, a complete computer reformat can get rid of the trash.
    
    
16. Home Appliances - Determine which appliances cause the most frustration, stress and break down the most. Once you’ve done this you have three options: learn to use the tool better to understand it and prevent stress, buy a new one or find a substitute that is less damage prone. Save yourself the headache and 80/20 your lawnmower.
    
    
17. Budget - Calculate all your discretionary expenses (after taxes, food and necessities). Now compare the money value of each expense with the utility of the purchase. If you wanted to compare different entertainment items in your budget, you could value each expense on the pleasure it brought you. If you wanted to compare different investments or tools you could compare return rates or productivity gained.
    
    
18. Blogging - Classify the types of posts you write into different categories. I’ve done this grouping by, post length, subject, format, style, images, etc. Multiply each by the amount of time to write each type of post. Then compare that data to your estimate of traffic gained from each. Use this as a guide for future writing.
    
    
19. Habits - Figure out which behaviors (or lack thereof) contribute the most to your life. Exercise? Rising Early? Family Dinners? Use this as a basis for making new habits.
    
    
20. Goals - It doesn’t matter whether you have them written down or just in your head. Look at all your goals and compare the resources required to accomplish each (time, money, energy, etc.) with the benefits gained. Benefits could be physical rewards, purposeful work or emotional quality. Pursue the goals with the highest value.
    

Do you have any unique uses of the 80/20 Rule?